583 B.R. 288
Bankr. S.D.N.Y.2018Background
- Four Australian debtors (intercompany lending entities controlled by the Binetter family) are in liquidation in Australia; Australian liquidators petitioned for recognition under Chapter 15 to assist administration and obtain discovery in the U.S.
- Liquidators commenced Australian proceedings (SAD5/2015) against family members (including Andrew and Michael Binetter) for breaches of statutory and fiduciary duties that produced large tax liabilities; liability was found and damages remained to be determined.
- Liquidators deposited $1,250 retainers per debtor in the U.S. with New York counsel and contend the retainer (and fiduciary-duty claims) constitute U.S. property under 11 U.S.C. § 109(a).
- Objecting parties (Ligon 158 Pty Ltd. and Andrew Binetter) argue the retainers were manufactured to create U.S. property and that the fiduciary-duty claims have their situs in Australia (so the Debtors lack property in the U.S. for § 109(a)).
- The bankruptcy court held a hearing, requested supplemental briefing on choice-of-law and situs, accepted expert declarations on Australian law, and limited its decision to the § 109(a) property issue (other recognition elements undisputed).
- Court granted recognition: (1) found the retainer deposits suffice as U.S. property under § 109(a); and (2) concluded, applying New York choice-of-law principles and Australian substantive law, that the fiduciary-duty claims are sitused in New York (thus also qualifying as U.S. property).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Debtors have "property" in the U.S. under 11 U.S.C. § 109(a) | Retainer funds deposited with U.S. counsel are U.S. property; fiduciary-duty claims also constitute U.S. property | Retainers were manufactured to create eligibility and should be disregarded; fiduciary-duty claims situs is Australia | Retainers are property in the U.S.; fiduciary-duty claims also have a New York situs under applicable law, so § 109(a) satisfied |
| Whether court should apply New York or Australian substantive law to determine situs of fiduciary-duty claims | Apply choice-of-law rules; Australia has greatest interest so Australian law governs the nature/situs of the claims | New York law should govern the situs (Binetters reside in NY; rely on NY tests) | New York choice-of-law rules applied; they point to Australian substantive law as having the greatest interest, so Australian law governs |
| Whether expert submissions on Australian law were sufficient under Fed. R. Civ. P. 44.1 | Liquidators provided Australian-law expert declarations and supplemental briefing after court request; record is sufficient | Objectors asked to reopen record for cross-examination and argued uncertainty about Australian law on fiduciary-duty situs | Court found parties had ample opportunity and the expert declarations and authorities were sufficient under Rule 44.1; denied reopening |
| Under Australian law, whether a chose in action for breach of fiduciary duty is sitused where the debtor (defendant) resides | Australian law treats choses in action as located where they are properly recoverable; for debts/choses in action, that is generally where debtor resides — thus NY for Binetters | Objectors argued the general rule may not extend to fiduciary-duty claims and that at time of breaches situs was Australia; urged court not to speculate | Court accepted Liquidators' expert: Australian law (following Jabbour principle as applied in Australian cases) localizes choses in action where debtor resides; fiduciary-duty claims are therefore sitused in NY |
Key Cases Cited
- In re Barnet, 737 F.3d 238 (2d Cir. 2013) (Chapter 15 § 109(a) residency/property requirement applies in Chapter 15)
- In re Fairfield Sentry Ltd., 768 F.3d 239 (2d Cir. 2014) (discusses choice-of-law and situs analyses for intangibles under certain agreed-law frameworks)
- In re Octaviar Admin. Pty Ltd., 511 B.R. 361 (Bankr. S.D.N.Y. 2014) (holding nominal retainer in New York counsel's account satisfies § 109(a))
- In re Suntech Power Holdings Co., Ltd., 520 B.R. 399 (Bankr. S.D.N.Y. 2014) (retainer and New York account established eligibility under § 109(a))
- In re U.S. Steel Can. Inc., 571 B.R. 600 (Bankr. S.D.N.Y. 2017) (discusses COMI and recognition presumptions; recognizes retainers as U.S. property for § 109(a))
- In re Koreag, Controle et Revision S.A., 961 F.2d 341 (2d Cir. 1992) (federal courts apply forum choice-of-law rules to determine which local law defines property interests)